Carmakers Cut Output as Europe Sales Fall 26%

PARIS/STOCKHOLM, Dec 16, 2008; Helen Massy-Beresford and Niklas Pollard writing for Reuters reported that European new car sales dropped by a quarter in November, data showed on Tuesday as more vehicle makers announced output cuts and the Big Three U.S. players waited for the government to throw them a lifeline.

Volkswagen's Spanish car maker Seat and world number two truckmaker Volvo became the latest companies to announce temporary production halts in response to falling sales as the global economic slowdown batters the industry.

Governments are rushing to support car manufacturers struggling to cope with falling sales and difficulties shifting their stocks of unsold vehicles.

On Monday, France said it was ready to take action following a meeting with top industry executives in return for commitments to keep production in the country.

"There's always a certain amount of posturing, but later, outsourcing can be dressed up as new production," said one Paris-based analyst who declined to be named. "I think PSA is less willing to make concessions than Renault," he added, noting the French government's stake in Renault.

In the U.S., the Bush administration could act as early as Wednesday to approve an automaker bailout from its bank rescue fund, with conditions likely to reflect at least those approved by the U.S. House of Representatives last week, key lawmakers and other sources said on Monday.

GM and Chrysler LLC, which is owned by Cerberus Capital Management, have said they need immediate cash injections to survive. Ford is seeking a government line of credit it could use if its financial position deteriorated more than expected in 2009.

Carmakers are also seeking help from their suppliers: Toyota Motor Corp plans to ask Nippon Steel Corp and other steelmakers for a 30 percent price cut, the Nikkei business daily reported on Tuesday.

Meanwhile, the world's fourth-largest steelmaker POSCO said on Tuesday it may cut output next year if market conditions continue to worsen.

In a further sign of the financial constraints hitting auto manufacturers, Fuji Heavy Industries said it would withdraw its Subaru team from the world rally championship. Fellow Japanese carmaker Suzuki Motor Corp announced its exit a day earlier, leaving only Citroen and Ford chasing the manufacturers' title.

Honda Motor Co, Japan's No.2 automaker, this month quit Formula One racing, saying it needed to conserve cash for its core-automaking business.

European new passenger car registrations dropped 25.8 percent year-on-year according to the ACEA industry body on Tuesday, the seventh consecutive monthly drop.

ACEA said the last time registrations fell so sharply was in 1999 and in 1993, before EU enlargement, when the data only covered the 15 EU member states plus the European Free Trade Association countries.

November's data referred to the 27 EU member states, plus the EFTA countries and excluded Malta and Cyprus, ACEA said.

CUT CUT CUT

Separately, Seat said it would further cut production at its main plant in Catalonia in the first half of 2009 in response to diving sales. The maker of the Ibiza and Leon said that between Feb. 2 and June 30 it would halt work at its Martorell plant near Barcelona for seven to 29 days on various production lines.

General Motors said on Monday it would temporarily shut down assembly lines at three of its Mexican car factories.

The decline in November sales was not just in passenger cars -- truck sales also fell, leading Volvo to stop production for 20 to 25 days in the first quarter of 2009.

Additional reporting for Reuters by Chang-Ran Kim, Alan Baldwin, Taiga Uranaka, Yuko Inoue, Mica Rosenberg, Editing Erica Billingham and Chris Wickham